Political standoff at economic cost

The Indian economy is growing at a fast clip but political infighting is costing the country dear. The logjam in Parliament is hurting business confidence, with the fate of several promised reform measures of the rendra Modi government now shrouded in uncertainty. The treasury benches have all but given up on the land acquisition bill, seemingly opting for the controversial legislation to come up from the states. Other key reform bills like those relating to Goods and Services Tax (GST), Indian Fincial Code and a clutch of flexible labour laws are also unlikely to pass Parliament any time this year. With major government initiatives blocked in the Rajya Sabha where the Opposition is in majority, the monsoon session is threatening to be a washout over one divisive issue or the other. In a recent report on the outlook for the Indian economy, global rating agency Moody’s has warned that though India is capable of growing at near 10 per cent, its GDP growth is ‘not likely to rise above 7.5 percent if the government continues to over-promise and not deliver’. Unless the BJP, Congress and other major parties do not hammer out a broad consensus over some critical reforms keeping the larger tiol interest in mind, the danger is that Parliament will become an ineffectual spectator if the country’s growth loses direction.    

The likelihood of foreign investors growing wary of investing in India, as well as stalled infrastructure projects and rise in bad loans — have also been listed by Moody’s as other areas of concern. It has further cautioned that any move to clip the RBI Governor’s wings in deciding interest rates, by creating an interest-setting panel filled with government nominees to over-rule him, will boomerang upon the country. All these warning sigls are emerging even as the World Bank and IMF continue to be upbeat about the Indian growth story. In July this year, the World Bank announced that the size of the Indian economy crossed the 2 trillion dollar (Rs 127,97,290 crores) mark in 2014. The country took sixty years to reach the one trillion dollar mark by 2007, and then the economy doubled in just seven years. However, India still continues to be at the ‘lower middle income’ level with the per capita gross tiol income (GNI) at 1,610 dollars (around Rs 1 lakh) in 2014. To put matters in perspective, Bangladesh and Myanmar are at the same level as India while Chi is at the ‘upper middle income’ level where the per capita GNI has to be between 4,126 to 12,735 dollars. If India maintains its present momentum, it will reach the ‘upper middle income’ level by 2026, but by then Chi would already be a ‘high income’ level country rubbing shoulders with US, Japan, Germany and UK.

So India’s overall growth rate has to translate at comparable pace into high per capita income with equitable distribution, if it is to reach its target to be a developed tion by 2040-50. NITI Aayog vice-chairman Arvind Pagariya however believes that the target may be brought forward by ten years to 2030 if the country continues with growth-ebling policies. Pointing to the country growing at an average rate of 8.3 per cent in the ten years from 2003-04 to 2012-13, Pagariya recently claimed that the Indian economy has broadened its base sufficiently to quadruple from 2-trillion to 8-trillion dollar size in the next 15 years, which will make it the third largest economy above Japan. But the country will have to pull out all stops with a massive push in infrastructure, universalising education and health services, leveraging its young working population by equipping it with proper skills, taking out excess labour from the farms even while transforming agriculture, and accelerating its services and manufacturing sectors. Meanwhile, the Intertiol Monetary Fund may have cut its global growth projections this year to 3.3 per cent, but has singled out India to be the fastest growing economy at 7.5 per cent both in 2015 and 2016. IMF chief Christine Lagarde went so far as to call India a ‘bright spot’ with its economic developments holding much promise, even as Chi slows down margilly in its transition to a new growth model. But for India to translate its promise to reality, its political parties must take collective responsibility to get their act together in Parliament and let it function. Forcing a policy paralysis at the top will be economic hara-kiri by the entire political class, as no government will be able to perform its ‘indicative role’ wisely and well.